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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lloyds Banking Group Plc | LSE:LLOY | London | Ordinary Share | GB0008706128 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.26 | 0.37% | 69.82 | 69.70 | 69.74 | 70.08 | 69.54 | 69.74 | 82,681,076 | 16:35:21 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Commercial Banks, Nec | 18B | 4.42B | 0.0729 | 9.57 | 42.17B |
From Mar 2020 to Mar 2025
TIDMLLOY
RNS Number : 5346D
Lloyds Banking Group PLC
30 April 2013
Lloyds Banking Group plc
Q1 2013 Interim Management Statement
30 April 2013
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BASIS OF PRESENTATION
This report covers the results of Lloyds Banking Group plc (the
Company) together with its subsidiaries (the Group) for the three
months to 31 March 2013.
Statutory basis
Statutory results are set out on pages 12 and 13. However, a number
of factors have had a significant effect on the comparability of
the Group's financial position and results. As a result, comparison
on a statutory basis of the 2013 results with 2012 is of limited
benefit.
Underlying basis
In order to present a more meaningful view of business performance,
the results of the Group and divisions are presented on an underlying
basis. The key principles adopted in the preparation of the underlying
basis of reporting are described below.
* In order to reflect the impact of the acquisition of
HBOS, the following items have been excluded:
* the amortisation of purchased intangible assets; and
* the unwind of acquisition-related fair value
adjustments.
* The following items, not related to acquisition
accounting, have also been excluded from underlying
profit:
* the effects of asset sales, liability managem * payment protection insurance provision;
ent and
volatile items;
* insurance gross up;
* volatility arising in insurance businesses;
* certain past service pensions credits in respect of
the Group's defined benefit pension schemes; and
* Simplification costs;
* other regulatory provisions.
* Verde costs;
The financial statements have been restated following the implementation
of IAS 19R Employee Benefits and IFRS 10 Consolidated Financial
Statements with effect from 1 January 2013. Further details are
shown on page 12.
To enable a better understanding of the Group's core business trends
and outlook, certain income statement, balance sheet and regulatory
capital information is analysed between core and non-core portfolios.
The non-core portfolios consist of businesses which deliver below-hurdle
returns, which are outside the Group's risk appetite or may be
distressed, are subscale or have an unclear value proposition,
or have a poor fit with the Group's customer strategy. Project
Verde is included in core portfolios.
The Group's core and non-core activities are not managed separately
and the preparation of this information requires management to
make estimates and assumptions that impact the reported income
statements, balance sheet, regulatory capital related and risk
amounts analysed as core and as non-core. The Group uses a methodology
that categorises income and expenses as non-core only where management
expect that the income or expense will cease to be earned or incurred
when the associated asset or liability is divested or run-off,
and allocates operational costs to the core portfolio unless they
are directly related to non-core activities. This results in the
reported operating costs for the non-core portfolios being less
than would be required to manage these portfolios on a stand-alone
basis. Due to the inherent uncertainty in making estimates, a different
methodology or a different estimate of the allocation might result
in a different proportion of the Group's income or expenses being
allocated to the core and non-core portfolios, different assets
and liabilities being deemed core or non-core and accordingly a
different allocation of the regulatory effects.
Unless otherwise stated income statement commentaries throughout
this document compare the three months to 31 March 2013 to the
three months to 31 March 2012, and the balance sheet analysis compares
the Group balance sheet as at 31 March 2013 to the Group balance
sheet as at 31 December 2012.
----------------------------------------------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS
This announcement contains forward looking statements with respect to the business, strategy and plans of the Lloyds Banking Group, its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about the Group or the Group's management's beliefs and expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will or may occur in the future. The Group's actual future business, strategy, plans and/or results may differ materially from those expressed or implied in these forward looking statements as a result of a variety of risks, uncertainties and other factors, including, but not limited to, UK domestic and global economic and business conditions; the ability to derive cost savings and other benefits, including as a result of the Group's Simplification programme; the ability to access sufficient funding to meet the Group's liquidity needs; changes to the Group's credit ratings; risks concerning borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability and the impact of any sovereign credit rating downgrade or other sovereign financial issues; market-related risks including, but not limited to, changes in interest rates and exchange rates; changing demographic and market-related trends; changes in customer preferences; changes to laws, regulation, accounting standards or taxation, including changes to regulatory capital or liquidity requirements; the policies and actions of governmental or regulatory authorities in the UK, the European Union, or jurisdictions outside the UK in which the Group operates, including other European countries and the US; the implementation of the draft EU crisis management framework directive and banking reform following the recommendations made by the Independent Commission on Banking; the ability to attract and retain senior management and other employees; requirements or limitations imposed on the Group as a result of HM Treasury's investment in the Group; the ability to complete satisfactorily the disposal of certain assets as part of the Group's EC state aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset valuations, market disruptions and illiquid markets; the effects of competition and the actions of competitors, including non-bank financial services and lending companies; exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints, and other factors. Please refer to the latest Annual Report on Form 20-F filed with the US Securities and Exchange Commission for a discussion of certain factors together with examples of forward looking statements. The forward looking statements contained in this announcement are made as at the date of this announcement, and the Group undertakes no obligation to update any of its forward looking statements.
KEY HIGHLIGHTS
'STRONG PERFORMANCE IN THE FIRST THREE MONTHS OF 2013'
'We made substantial progress again in the first quarter. Underlying and statutory profits improved significantly, and our core loan book returned to growth earlier than expected. Margin increased, and costs and impairments continued to fall rapidly, with this progress underpinned by a further strengthening of our balance sheet. We are delivering real benefits for customers, colleagues and shareholders by investing behind our simple, UK customer-focused retail and commercial banking model, and are now further ahead in our plan to transform the Group, as reflected in the enhanced guidance for costs and capital we are giving today'.
António Horta-Osório
Group Chief Executive
Substantial increase in Group underlying and statutory profit
-- Group underlying profit of GBP1,479 million (Q1 2012: GBP497 million) -- Statutory profit before tax of GBP2,040 million (Q1 2012: GBP280 million)
-- Total underlying income of GBP4,889 million up 3 per cent, includes GBP394 million gain relating to the sale of shares in St. James's Place
-- Group net interest margin increased to 1.96 per cent; on track to meet guidance for 2013
-- Costs further reduced by 6 per cent to GBP2,408 million; Simplification run-rate savings increased to over GBP1.0 billion
-- 40 per cent reduction in impairment charge to GBP1,002 million (Q1 2012: GBP1,657 million)
Core returns further improved and increased core underlying profit
-- Core return on risk-weighted assets increased from 2.61 per cent to 3.20 per cent
-- Core underlying profit increased by 19 per cent to GBP1,871 million (Q1 2012: GBP1,576 million)
-- Core net interest margin of 2.34 per cent improved by 2 basis points -- 4 per cent reduction in core costs to GBP2,269 million (Q1 2012: GBP2,353 million)
-- Core loans and advances increased by GBP0.6 billion in the first quarter of 2013, ahead of guidance
Strong balance sheet; continue to be confident in capital position
-- Core tier 1 capital ratio increased to 12.5 per cent (31 December 2012: 12.0 per cent)
-- 60 basis points of underlying pro forma fully loaded CRD IV capital generation in the first quarter, offsetting IAS 19R impact; estimated pro forma fully loaded CRD IV core tier 1 ratio unchanged at 8.1 per cent
-- Continued capital-accretive non-core asset reduction of GBP9 billion on a constant currency basis, GBP6 billion after currency effects. Non-core assets now GBP92.1 billion (31 December 2012: GBP98.4 billion)
-- Sale of Spanish retail operations agreed in April, which will lead to a further reduction of GBP1.5 billion in non-core assets
-- Core loan to deposit ratio of 100 per cent; Group loan to deposit ratio of 119 per cent; deposit growth of 1 per cent in quarter
Supporting customers and the UK economic recovery
-- Commercial Banking core loan book returning to growth
-- Positive SME net lending growth of 4 per cent in the last twelve months, against market contraction of 4 per cent
-- Over GBP350 million committed to manufacturing in the first quarter of 2013; on track to exceed GBP1 billion target
-- Supported over 13,000 first-time buyers in the first quarter of 2013; committed to helping around 60,000 in 2013
-- Continue to address existing legacy issues; PPI complaints falling in line with expectations; progressing IPO of Verde
Increased cost reduction targets for 2013 and 2014; expect fully loaded core tier 1 ratio above 10 per cent by end 2014
-- On track to meet 2013 guidance, including a Group net interest margin of around 1.98 per cent in 2013
-- Now targeting further reduction in total costs to around GBP9.6 billion in 2013, compared to previous target of GBP9.8 billion
-- Expect total costs to be around GBP9.15 billion in 2014, assuming Verde IPO in mid 2014
-- Expect our estimated pro forma fully loaded CRD IV core tier 1 ratio to be above 9 per cent by end of 2013 and above 10 per cent by end of 2014
UNDERLYING BASIS CONSOLIDATED INCOME STATEMENT
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2013 2012(1) Change 2012(1) Change
GBP million GBP million % GBP million %
Net interest income 2,553 2,633 (3) 2,545
Other income 2,422 2,203 10 2,040 19
Insurance claims (86) (108) 20 (30)
----------- ----------- -----------
Total underlying income 4,889 4,728 3 4,555 7
Total costs (2,408) (2,574) 6 (2,587) 7
Impairment (1,002) (1,657) 40 (1,278) 22
----------- -----------
Underlying profit 1,479 497 198 690 114
Asset sales and volatile
items 1,073 290 1,946 (45)
Simplification and Verde
costs (409) (269) (52) (515) 21
Legacy items - (375) (2,000)
Other items (103) 137 (120) 14
Profit before tax - statutory 2,040 280 1
Taxation (500) (277) (81) (352) (42)
----------- ----------- -----------
Profit (loss) for the period 1,540 3 (351)
----------- ----------- -----------
Earnings (loss) per share 2.2p 0.0p 2.2p (0.5)p 2.7p
Banking net interest margin 1.96% 1.95% 1bp 1.94% 2bp
Average interest-earning
assets GBP520.3bn GBP558.8bn (7) GBP529.9bn (2)
Impairment charge as a %
of average advances 0.80% 1.14% (34)bp 0.96% (16)bp
Return on risk-weighted assets 1.96% 0.57% 139bp 0.87% 109bp
BALANCE SHEET - KEY RATIOS
At At
31 Mar 31 Dec Change
2013 2012 %
Loans and advances to customers excluding
reverse repos(2) GBP508.8bn GBP512.1bn (1)
Core - loans and advances to customers excluding
reverse repos(2) GBP425.9bn GBP425.3bn
Customer deposits excluding repos(3) GBP428.2bn GBP422.5bn 1
Core - customer deposits excluding repos(3) GBP424.7bn GBP419.1bn 1
Loan to deposit ratio(4) 119% 121% (2)pp
Core loan to deposit ratio(4) 100% 101% (1)pp
Non-core assets GBP92.1bn GBP98.4bn (6)
Wholesale funding GBP162.1bn GBP169.6bn (4)
Wholesale funding <1 year maturity GBP50.9bn GBP50.6bn 1
Risk-weighted assets(5) GBP302.5bn GBP310.3bn (3)
Core tier 1 capital ratio(5) 12.5% 12.0% 0.5pp
Estimated pro forma fully loaded CRD IV core
tier 1 ratio(5) 8.1% 8.1%
Net tangible assets per share(1) 54.9p 51.9p 3.0p
(1) Restated to reflect the implementation of IAS 19R and IFRS 10.
See page 12.
(2) Excludes reverse repos of GBP3.2 billion (31 December 2012: GBP5.1
billion) (all core).
(3) Excludes repos of GBP3.0 billion (31 December 2012: GBP4.4 billion)
(all core).
(4) Loans and advances to customers excluding reverse repos divided
by customer deposits excluding repos.
(5) 31 December 2012 comparatives have not been restated to reflect
the implementation of IAS 19R and IFRS10.
UNDERLYING BASIS CONSOLIDATED INCOME STATEMENT - CORE AND NON-CORE
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
Core 2013 2012(1) Change 2012(1) Change
GBP million GBP million % GBP million %
Net interest income 2,452 2,450 2,487 (1)
Other income 2,265 1,999 13 1,932 17
Insurance claims (86) (108) 20 (30)
----------- ----------- -----------
Total underlying income 4,631 4,341 7 4,389 6
Total costs (2,269) (2,353) 4 (2,341) 3
Impairment (491) (412) (19) (568) 14
----------- ----------- -----------
Underlying profit 1,871 1,576 19 1,480 26
----------- ----------- -----------
Banking net interest margin 2.34% 2.32% 2bp 2.33% 1bp
Impairment charge as a % of
average advances 0.51% 0.36% 15bp 0.50% 1bp
Return on risk-weighted assets 3.20% 2.61% 59bp 2.47% 73bp
(1) Restated to reflect the implementation of IAS 19R and IFRS 10.
See page 12.
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
Non-core 2013 2012 Change 2012 Change
GBP million GBP million % GBP million %
Net interest income 101 183 (45) 58 74
Other income 157 204 (23) 108 45
Insurance claims - - -
----------- ----------- -----------
Total underlying income 258 387 (33) 166 55
Total costs (139) (221) 37 (246) 43
Impairment (511) (1,245) 59 (710) 28
----------- ----------- -----------
Underlying loss (392) (1,079) 64 (790) 50
----------- ----------- -----------
Banking net interest margin 0.44% 0.70% (26)bp 0.37% 7bp
Impairment charge as a % of
average advances 2.03% 3.71% (168)bp 2.80% (77)bp
The basis of preparation of the core and non-core income statements is set out on the inside front cover.
GROUP CHIEF EXECUTIVE'S OVERVIEW
In the first three months of 2013 the Group delivered a substantial increase in both underlying and statutory profit. We continue to invest in our simple, lower risk, customer focused UK retail and commercial banking business model which will allow us to become the best bank for customers and further deliver on our commitment to support the UK economy, as well as delivering strong stable and sustainable results for our shareholders.
Improved Group statutory profit performance and core lending returning to growth
The Group delivered a substantial increase in statutory profit before tax to GBP2,040 million (Q1 2012: GBP280 million) and an underlying profit before tax of GBP1,479 million (Q1 2012: GBP497 million). The increase was driven by higher income, which includes the gain of GBP394 million relating to the sale of shares in St. James's Place, continued improvements in cost efficiency and a further substantial reduction in impairment charges. Returns in our core business improved further and we are now seeing signs of core lending returning to sustainable growth.
Further capital-accretive non-core reductions of GBP9 billion on a constant currency basis, GBP6 billion after currency effects, were made in the first quarter. These taken together with our improved profitability helped strengthen the Group's core tier 1 capital ratio to 12.5 per cent (31 December 2012: 12.0 per cent). The Group's estimated pro forma fully loaded CRD IV core tier 1 ratio was unchanged at 8.1 per cent, with underlying capital generation of 60 basis points offsetting the changes to pension accounting implemented with effect from 1 January (IAS 19R). We continue to be confident in our capital position given our strongly capital generative core business and continued progress in releasing capital and reducing risk through non-core asset disposals.
Our success in reducing non-core assets and increasing deposits has led to a further improvement in the loan to deposit ratio to 119 per cent, ahead of our original 2012 guidance. The core loan to deposit ratio is now 100 per cent.
Supporting our customers and the UK economy
The Group actively supports sustainable growth in the UK economy through the focused range of products and services we provide to our business and personal customers, as well as through partnerships we have built with industry and Government. The UK Government's Funding for Lending Scheme supports the UK economic recovery and we have committed in excess of GBP18 billion in gross funds to customers through the scheme since September 2012.
In support of the SME sector we increased our net lending by 4 per cent, year on year, compared to the market which saw a further contraction. Meanwhile in support of mid-market clients, we launched our Mid-Corporate Client Charter, which aims to position Lloyds Bank Commercial Banking firmly as the best bank for business, making a clear statement that we are well placed to help the UK's mid-corporates achieve their ambitions. The Commercial Banking core loan book returned to growth in the first three months of 2013, driving an increase in the core Group loan book. This was ahead of our previously committed Group target for the second half of 2013.
For our UK Retail customers, we lent GBP1,500 million to over 13,000 first time buyers in the first quarter. We support the UK Government's new Help-To-Buy scheme, believing it will provide a much needed boost to the UK housing market and, most importantly, help to address the issue of accessibility.
Verde update
As announced on 24 April 2013, following the withdrawal of the Co-Operative Group from the sale process we now intend to divest Verde through an IPO, subject to regulatory and EC approval, having maintained this option throughout the process to ensure best value for shareholders and certainty for customers and colleagues. The Group has already made good progress in the creation of Verde as a stand-alone bank with a strong management team already in place and good progress made in creating segregated IT systems on the proven Lloyds Banking Group platform. Detailed plans are in place for a rebranding of the business as TSB which will be visible on the High Street during the summer of this year, at which point the TSB Bank (Verde) will operate as a separate business within Lloyds Banking Group.
GROUP CHIEF EXECUTIVE'S OVERVIEW (continued)
Guidance
We remain confident in achieving our existing guidance, including for the Group banking net interest margin to be around 1.98 per cent for the full year 2013, and for a substantially reduced 2013 impairment charge. We now expect total costs to be around GBP9.6 billion in full year 2013, down from our previous guidance of GBP9.8 billion, as a result of the deconsolidation of St. James's Place and further cost savings. In addition, given the progress we have made in achieving cost efficiencies, and assuming a Verde IPO in mid 2014, we now expect costs to be around GBP9.15 billion for the full year 2014. This represents a reduction of around GBP2 billion since 2010 and around GBP1 billion more than the original strategic review target.
We continue to expect that our non-core assets will be less than GBP70 billion by the end of 2014, with non-core non-retail assets being less than GBP35 billion, and expect an estimated pro forma fully loaded CRD IV core tier 1 ratio of above 9 per cent by the end of 2013 and above 10 per cent by the end of 2014.
FINANCIAL PERFORMANCE
Overview
In the first three months of 2013, the Group delivered significantly improved profits on both an underlying and statutory basis. Returns in the core business improved and we saw the core loan book return to growth. We continued to reduce non-core assets in a capital-accretive way, and losses in the non-core business were significantly reduced. The Group's capital position was further improved and our liquidity position remains strong.
Significantly improved Group underlying and statutory profits
Group underlying profit before tax increased by GBP982 million to GBP1,479 million, driven by increased income, reduced costs and a further substantial reduction in impairment charges. The 3 per cent increase in underlying income to GBP4,889 million was principally driven by a GBP394 million gain relating to the sale of shares in St. James's Place. Excluding the gain, total underlying income fell 5 per cent year-on-year, but was broadly stable when compared with the previous quarter, despite further non-core reductions, as we saw encouraging signs of core lending growth, particularly in Commercial Banking. The 6 per cent reduction in total costs, compared to the first quarter of 2012, to GBP2,408 million was driven mainly by further savings from the Simplification programme. The 40 per cent reduction in impairments to GBP1,002 million was driven by further significant improvements in non-core.
Group statutory profit before tax increased by GBP1,760 million to GBP2,040 million, primarily driven by improved underlying profit and also by increased asset sales and positive insurance volatility.
The core business return on risk-weighted assets increased from 2.61 per cent to 3.20 per cent, driven by the 19 per cent increase in core underlying profit. Excluding the gain relating to the sale of shares in St. James's Place the return on risk-weighted assets was 2.53 per cent. Underlying income increased 7 per cent to GBP4,631 million, and net interest margin increased 2 basis points to 2.34 per cent. A further reduction in costs of 4 per cent was primarily through our Simplification initiatives. Although core impairment charges increased 19 per cent to GBP491 million, this was primarily attributable to releases in the Commercial Banking portfolio during the first quarter of 2012 which were not repeated in the first quarter of 2013.
In non-core, the underlying loss reduced 64 per cent to GBP392 million year-on-year, as result of a 59 per cent reduction in the impairment charge to GBP511 million, and an GBP82 million or 37 per cent reduction in total costs to GBP139 million.
Strong balance sheet
We delivered a further reduction of GBP6.3 billion in non-core assets, or GBP8.6 billion on a constant exchange rate basis. Together with the GBP5.7 billion increase in customer deposits, this resulted in an improvement in the Group loan to deposit ratio of 2 percentage points, to 119 per cent. The growth in deposits led to an improvement in the core loan to deposit ratio of 1 percentage point to 100 per cent. Wholesale funding reduced further, by GBP7.5 billion to GBP162.1 billion. As at 31 March 2013, our primary liquidity represented approximately 1.6 times our aggregate wholesale funding requirement of less than one year, and the strength of this buffer enabled us to repay GBP8 billion of our Long Term Refinancing Operation funding from the European Central Bank during the quarter.
Our improved profitability and further non-core asset reduction enabled us to strengthen the Group's capital position, increasing our core tier 1 capital ratio by 50 basis points to 12.5 per cent. Our estimated pro forma fully loaded CRD IV core tier 1 ratio was unchanged at 8.1 per cent, with underlying capital generation of 60 basis points offsetting the impact of the changes to pension accounting (IAS 19R) introduced with effect from 1 January this year.
FINANCIAL PERFORMANCE (continued)
Total underlying income
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2013 2012 Change 2012 Change
GBP million GBP million % GBP million %
Net interest income 2,553 2,633 (3) 2,545
Other income 2,422 2,203 10 2,040 19
Insurance claims (86) (108) 20 (30)
----------- ----------- -----------
Total underlying income 4,889 4,728 3 4,555 7
----------- ----------- -----------
Banking net interest margin 1.96% 1.95% 1bp 1.94% 2bp
Average interest-earning banking
assets GBP520.3bn GBP558.8bn (7) GBP529.9bn (2)
Loan to deposit ratio 119% 130% (11)pp 121% (2)pp
Group underlying income was up 3 per cent at GBP4,889 million. Excluding the gain relating to the sale of shares in St. James's Place, which was included in other income, underlying income was down 5 per cent, but down only 1 per cent compared to the fourth quarter of 2012.
Group net interest income was 3 per cent lower compared to the same period in 2012 reflecting the 7 per cent reduction in average interest-earning assets partly offset by the underlying improvement in net interest margin. Net interest margin improved to 1.96 per cent driven by asset repricing which more than offset the income impact from the repositioning of the government bond portfolio and the run-off of the structural hedge.
Group other income was 10 per cent higher reflecting the gain relating to the sale of shares in St. James's Place. Excluding the gain, other income was broadly stable compared to the fourth quarter of 2012 but was 8 per cent lower than the first quarter of 2012.
Core underlying income
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2013 2012 Change 2012 Change
GBP million GBP million % GBP million %
Net interest income 2,452 2,450 2,487 (1)
Other income 2,265 1,999 13 1,932 17
Insurance claims (86) (108) 20 (30)
----------- ----------- -----------
Total underlying income 4,631 4,341 7 4,389 6
----------- ----------- -----------
Banking net interest margin 2.34% 2.32% 2bp 2.33% 1bp
Average interest-earning banking
assets GBP418.3bn GBP429.7bn (3) GBP421.0bn (1)
Loan to deposit ratio 100% 105% (5)pp 101% (1)pp
Core net interest income was in line with the same period in 2012 as the impact of the 3 per cent reduction in average interest-earning assets over the year was offset by the improved net interest margin. The net interest margin improved as a result of asset repricing which offset the impact from the repositioning of the government bond portfolio.
Core other income was 13 per cent higher as a result of the gain relating to the sale of shares in St. James's Place. Excluding the gain, core other income was 3 per cent lower than the fourth quarter of 2012, with continued growth in Commercial Banking offset by lower insurance income, which in the fourth quarter of 2012 benefited from both assumption changes and lower insurance claims. The reduction since the first quarter of 2012 reflects the impact of the reduction in balance sheet on fees and commissions, reduced bancassurance income and the strong performance in sales and trading reported in the first quarter of 2012. We saw continued growth in core Commercial Banking other income in the first quarter of 2013.
FINANCIAL PERFORMANCE (continued)
Total costs
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2013 2012 Change 2012 Change
GBP million GBP million % GBP million %
Core 2,269 2,353 4 2,341 3
Non-core 139 221 37 246 43
----------- -----------
Total costs 2,408 2,574 6 2,587 7
----------- ----------- -----------
Simplification savings annual
run-rate 1,007 352 847 19
Total costs decreased 6 per cent compared to the same period in 2012 mainly as a result of savings from the Simplification programme. We now expect costs to be around GBP9.6 billion for the full year 2013, compared to our previous guidance of GBP9.8 billion, reflecting a reduction of GBP0.1 billion from the deconsolidation of St. James's Place and further cost savings, and around GBP9.15 billion for the full year 2014, assuming a Verde IPO in mid 2014.
Core total costs reduced by 4 per cent mainly driven by the benefits of the Simplification programme, partly offset by inflationary pressures and increased investment in the business. Non-core costs have fallen due to the significant reduction in non-core business we have achieved over the year.
As at 31 March 2013, we had realised annual run-rate savings of GBP1,007 million from our initiatives to simplify the Group, an increase of GBP160 million since 31 December 2012 and GBP655 million since 31 March 2012, with the Simplification programme contributing cost savings of GBP282 million in the three months to 31 March 2013. We remain confident of achieving our target of GBP1.9 billion of annual run-rate cost savings by the end of 2014.
Impairment
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2013 2012 Change 2012 Change
GBP million GBP million % GBP million %
Core 491 412 (19) 568 14
Non-core 511 1,245 59 710 28
----------- -----------
Total impairment 1,002 1,657 40 1,278 22
----------- ----------- -----------
Impairment charge as a % of
average advances
Core 0.51% 0.36% 15bp 0.50% 1bp
Non-core 2.03% 3.71% (168)bp 2.80% (77)bp
Total impairment 0.80% 1.14% (34)bp 0.96% (16)bp
The impairment charge was 40 per cent lower than the same period in 2012, continuing the improvement we saw in 2012. Impaired loans as a percentage of closing advances reduced to 8.0 per cent at 31 March 2013, from 8.6 per cent at 31 December 2012, driven by improvements in Commercial Banking, and Wealth, Asset Finance and International and reflecting reductions in both the core and non-core books. Provisions as a percentage of impaired loans increased from 48.2 per cent at 31 December 2012 to 51.0 per cent at 31 March 2013, with increases in both the core and non-core books.
Core impairment
The 19 per cent increase in core impairment charge in the quarter compared to the same period in 2012 was primarily attributable to releases in the Commercial Banking portfolio during the first quarter of 2012 which were not repeated in the first quarter of 2013. The 14 per cent decrease against the fourth quarter of 2012 reflects a significant reduction in Commercial Banking impairments. The impairment charge as a percentage of average advances in the core business at 0.51 per cent is within our long-term target for the Group as a whole of 50 to 60 basis points.
Non-core impairment
The non-core impairment charge decreased 59 per cent to GBP511 million compared to the same period in 2012, driven by substantial reductions in the Commercial Banking and International portfolios. The 28 per cent decrease against the fourth quarter of 2012 was again driven by reductions in Commercial Banking impairments.
FINANCIAL PERFORMANCE (continued)
Statutory profit
Statutory profit before tax was GBP2,040 million in the three months ended 31 March 2013. Further detail on the reconciliation of underlying to statutory results is included on page 15.
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2013 2012(1) Change 2012(1) Change
GBP million GBP million % GBP million %
Underlying profit 1,479 497 198 690 114
Asset sales and volatile items:
----------- ----------- -----------
Asset sales(2) 823 122 1,248 (34)
Liability management (87) 168 (22)
Own debt volatility (19) (184) 90 71
Other volatile items (101) (15) 140
Volatility arising in insurance
businesses 462 169 71
Fair value unwind (5) 30 438
----------- ----------- -----------
1,073 290 1,946 (45)
Simplification and Verde costs (409) (269) (52) (515) 21
Legacy items:
----------- ----------- -----------
Payment protection insurance
provision - (375) (1,500)
Other regulatory provisions - - (500)
----------- ----------- -----------
- (375) (2,000)
Other items:
----------- ----------- -----------
Past service pensions credit - 258 -
Amortisation of purchased
intangibles (103) (121) 15 (120) 14
----------- ----------- -----------
(103) 137 (120) 14
Profit before tax - statutory 2,040 280 1
Taxation (500) (277) (81) (352) (42)
----------- ----------- -----------
Profit (loss) for the period 1,540 3 (351)
----------- ----------- -----------
Earnings (loss) per share 2.2p 0.0p 2.2p (0.5)p 2.7p
(1) Restated to reflect the implementation of IAS 19R and IFRS 10.
See page 12.
(2) Net of associated fair value unwind of GBP1,309 million (Q1 2012:
GBP325 million).
Asset sales
Asset sales in the quarter included gains on government securities of GBP776 million. The Group has now largely completed its actions to rebalance and reduce holdings afforded by the low yields on these securities. Also included are losses from asset sales of GBP1,262 million, principally relating to the run-down of the non-core portfolios, which have been more than offset by a related fair value unwind of GBP1,309 million.
Volatility arising in insurance businesses
The Group's statutory result before tax is affected by insurance volatility, caused by movements in financial markets, and policyholder interests volatility, which primarily reflects the gross up of policyholder tax included in the Group tax charge. In the first three months of 2013, the statutory result included GBP462 million of positive insurance and policyholder interests volatility (31 March 2012: GBP169 million), reflecting the rise in equity markets in the period.
Simplification and Verde costs
The costs of the Simplification programme in the first quarter of 2013 were GBP214 million, with a total of GBP1,075 million spent to date. These costs related to severance, IT and business costs of implementation. A further 1,890 FTE role reductions were announced in the first quarter of 2013, taking the total to 8,880 since the start of the programme. Verde costs in the first quarter of 2013 were GBP195 million and from inception to the end of March 2013 totalled GBP977 million.
FINANCIAL PERFORMANCE (continued)
Payment protection insurance provision
No further PPI provision has been taken in the first quarter of 2013. The volume of PPI complaints has continued to fall in line with expectations with average weekly complaints now at approximately 15,000, down 28 per cent on the last quarter and less than half the level experienced in the second quarter of 2012. Total costs incurred in the first quarter were GBP586 million, including approximately GBP180 million of related administration costs. Costs in the first half will now be marginally higher than expected due to the acceleration of the settlement of cases currently held with the Financial Ombudsman Service and one off VAT payments. As previously forecast we continue to expect monthly costs to decline in the second half of the year.
Taxation
The tax charge for the first three months of 2013 was GBP500 million. This reflects a marginally higher effective tax rate than the UK statutory rate primarily due to a policyholder tax charge, which is partially offset by exempt gains or gains covered by capital losses.
Balance sheet
Funding and liquidity
The Group loan to deposit ratio has improved from 121 per cent at 31 December 2012 to 119 per cent. The core loan to deposit ratio improved to 100 per cent from 101 per cent at 31 December 2012.
At At
31 Mar 31 Dec Change
2013 2012 %
Funded assets GBP528.8bn GBP535.4bn (1)
Non-core assets GBP92.1bn GBP98.4bn (6)
Customer deposits(1) GBP428.2bn GBP422.5bn 1
Wholesale funding GBP162.1bn GBP169.6bn (4)
Wholesale funding <1 year maturity GBP50.9bn GBP50.6bn 1
Of which money-market funding <1 year
maturity GBP30.6bn GBP31.0bn (1)
Wholesale funding <1 year maturity as
a % of total wholesale funding 31.4% 29.8% 1.6pp
Loan to deposit ratio(2) 119% 121% (2)pp
Core loan to deposit ratio(2) 100% 101% (1)pp
Primary liquid assets GBP81.3bn GBP87.6bn (7)
Secondary liquidity GBP113.3bn GBP117.1bn (3)
(1) Excluding repos of GBP3.0 billion (31 December 2012: GBP4.4 billion)
(all core).
(2) Loans and advances to customers excluding reverse repos divided
by customer deposits excluding repos.
In the first three months of 2013, we further reduced our non-core portfolio by GBP6.3 billion to GBP92.1 billion. The reductions included GBP3 billion in treasury assets and GBP2 billion in UK commercial real estate and reductions in Ireland, Asset Finance, Acquisition Finance and Shipping. They continue to be managed in a capital efficient manner, and were capital-accretive. In addition, in April we agreed the sale of our Spanish retail operations which will lead to a further reduction of GBP1.5 billion in non-core assets.
Customer deposits increased 1 per cent in the first quarter of 2013, primarily driven by higher deposits in Retail and growth in Transaction Banking in Commercial Banking.
Wholesale funding has reduced by 4 per cent since 31 December 2012 to GBP162.1 billion. Our short-term wholesale funding remained stable at GBP50.9 billion (31 December 2012: GBP50.6 billion). Wholesale funding with a maturity of less than one year at 31 March 2013 was 31.4 per cent, compared to 29.8 per cent at 31 December 2012.
FINANCIAL PERFORMANCE (continued)
Our liquidity position remains strong, with primary liquid assets of GBP81.3 billion at 31 March 2013 (31 December 2012: GBP87.6 billion). The reduction of non-core assets combined with continued growth in customer deposits has enabled a further reduction in wholesale funding and the repayment of GBP8 billion of our Long Term Refinancing Operation funding from the European Central Bank. Primary liquid assets represent approximately 2.5 times our money-market funding and are approximately 1.6 times our aggregate wholesale funding with a maturity of less than one year, providing a substantial buffer in the event of market dislocation. In addition to primary liquid assets, we have significant secondary liquidity holdings of GBP113.3 billion. Our total liquid assets represent approximately 3.8 times our aggregate wholesale funding with a maturity of less than one year.
Risk-weighted assets and capital ratios
At At
31 Mar 31 Dec Change
2013 2012 %
Risk-weighted assets(1) GBP302.5bn GBP310.3bn (3)
Non-core risk-weighted assets GBP65.6bn GBP72.9bn (10)
Core tier 1 capital ratio(1) 12.5% 12.0% 0.5pp
Tier 1 capital ratio(1) 12.6% 13.8% (1.2)pp
Total capital ratio(1) 17.8% 17.3% 0.5pp
Estimated pro forma fully loaded CRD
IV core tier 1 ratio(1) 8.1% 8.1%
(1) 31 December 2012 comparatives have not been restated to reflect
the implementation of IAS 19R and IFRS10.
The Group's core tier 1 capital ratio increased to 12.5 per cent at the end of March 2013 from 12.0 per cent at the end of December 2012, principally driven by a reduction in risk-weighted assets, underlying profit including the gain relating to the sale of shares in St. James's Place, and the gain on sale of government bonds partially offset by tax and the adverse impact of GBP1.2 billion from the implementation of pension accounting changes (IAS 19R).
The Group's estimated pro forma fully loaded CRD IV core tier 1 ratio was unchanged at 8.1 per cent. The 60 basis points adverse impact of the pension scheme accounting changes has been offset by reduced risk-weighted assets and trading profits and also reflects the GBP350 million issuance of share capital. The Group expects this ratio to improve through the rest of 2013 and into 2014, based on underlying performance and anticipated management actions, and we expect our estimated pro forma fully loaded CRD IV core tier 1 ratio to be above 9 per cent by the end of 2013 and above 10 per cent by the end of 2014.
The estimated pro forma fully loaded CRD IV core tier 1 ratio reflects estimates of the impact of the rules laid out in the latest draft of CRD IV published by the European Commission.
The Group has a strong capital position. Whilst the Bank of England's Financial Policy Committee (FPC) has stated that major UK banks and building societies had an aggregate capital shortfall at end 2012 of around GBP25 billion, the Group is awaiting the outcome of the consideration of the FPC's recommendations by the Prudential Regulatory Authority Board. Given our strongly capital generative core business and continued progress in increasing capital and reducing risk through non-core asset disposals, we continue to be confident in our capital position.
STATUTORY CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2013 2012(1) 2012(1)
GBP million GBP million GBP million
Interest and similar income 5,383 6,075 5,632
Interest and similar expense (4,926) (4,787) (3,412)
----------- ----------- -----------
Net interest income 457 1,288 2,220
----------- ----------- -----------
Fee and commission income 1,158 1,171 1,115
Fee and commission expense (405) (407) (356)
----------- ----------- -----------
Net fee and commission income 753 764 759
Net trading income 12,893 6,716 3,985
Insurance premium income 2,105 2,100 2,069
Other operating income 1,858 1,011 2,171
----------- ----------- -----------
Other income 17,609 10,591 8,984
----------- ----------- -----------
Total income 18,066 11,879 11,204
Insurance claims (12,167) (6,998) (4,595)
----------- ----------- -----------
Total income, net of insurance claims 5,899 4,881 6,609
----------- ----------- -----------
Regulatory provisions - (375) (1,950)
Other operating expenses (3,000) (2,771) (3,287)
----------- ----------- -----------
Total operating expenses (3,000) (3,146) (5,237)
----------- ----------- -----------
Trading surplus 2,899 1,735 1,372
Impairment (859) (1,455) (1,371)
----------- -----------
Profit before tax 2,040 280 1
Taxation (500) (277) (352)
----------- ----------- -----------
Profit (loss) for the period 1,540 3 (351)
----------- ----------- -----------
Profit attributable to non-controlling
interests 15 8 33
Profit (loss) attributable to equity
shareholders 1,525 (5) (384)
----------- ----------- -----------
Profit (loss) for the period 1,540 3 (351)
----------- ----------- -----------
Basic earnings (loss) per share 2.2p 0.0p (0.5)p
Diluted earnings (loss) per share 2.2p 0.0p (0.5)p
(1) Restated to reflect the implementation of IAS 19R and IFRS 10.
See below.
Restatements to reflect new accounting standards effective from 1 January 2013
Comparative financial information has been restated following the adoption of the following new accounting standards effective from 1 January 2013:
Amendments to IAS 19 Employee Benefits (IAS 19R). The main change is that actuarial gains and losses in respect of defined benefit pension schemes are no longer permitted to be deferred using the corridor approach and must be recognised immediately in other comprehensive income. In addition, IAS 19R requires a net interest amount to be calculated by applying the discount rate to the net defined benefit liability or asset, in place of the interest cost on scheme liabilities and the expected return on scheme assets. The effect of applying this amended standard at 1 January 2013 was the recognition of previously unrecognised actuarial losses of GBP2.7 billion and deferred tax assets of GBP0.6 billion, leading to a reduction in shareholders' equity of GBP2.1 billion. The changes to the calculation of the income statement charge have decreased profit after tax for Q1 2013 by GBP1 million (Q1 2012: GBP10 million).
IFRS 10 Consolidated Financial Statements. This new standard establishes the principles to determine whether one entity controls another; where such control exists the controlling entity is required to consolidate the other entity in its financial statements. The adoption of IFRS 10 has required the Group to consolidate certain entities that were previously not consolidated and deconsolidate certain entities that were previously consolidated. The effect of applying IFRS 10 at 1 January 2013 was to recognise an increase in total assets and total liabilities of GBP10.2 billion with no resulting change in shareholders' equity and no impact on profit after tax for Q1 2013 (Q1 2012: GBPnil).
SUMMARY CONSOLIDATED BALANCE SHEET (UNAUDITED)
At At
31 Mar 31 Dec
2013 2012(1)
Assets GBP million GBP million
Cash and balances at central banks 67,131 80,298
Trading and other financial assets at fair value
through profit or loss 135,801 160,620
Derivative financial instruments 55,490 56,557
Loans and receivables:
----------- -----------
Loans and advances to banks 32,003 32,757
Loans and advances to customers 512,027 517,225
Debt securities 3,638 5,273
----------- -----------
547,668 555,255
Available-for-sale financial assets 32,008 31,374
Other assets 59,429 50,117
----------- -----------
Total assets 897,527 934,221
----------- -----------
Liabilities
Deposits from banks 19,640 38,405
Customer deposits 431,156 426,912
Trading and other financial liabilities at fair
value through profit or loss 38,302 33,392
Derivative financial instruments 47,505 48,676
Debt securities in issue 111,414 117,253
Liabilities arising from insurance and investment
contracts 115,563 137,592
Subordinated liabilities 34,008 34,092
Other liabilities 56,458 55,318
------- -------
Total liabilities 854,046 891,640
------- -------
Total equity 43,481 42,581
------- -------
Total equity and liabilities 897,527 934,221
------- -------
(1) Restated to reflect the implementation of IAS 19R and IFRS 10.
See page 12.
APPENDIX 1
QUARTERLY UNDERLYING BASIS INFORMATION
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
31 Mar 31 Dec 30 Sept 30 June 31 Mar
Group 2013 2012(1) 2012(1) 2012(1) 2012(1)
GBP million GBP million GBP million GBP million GBP million
Net interest income 2,553 2,545 2,575 2,582 2,633
Other income 2,422 2,040 2,112 2,061 2,203
Insurance claims (86) (30) (102) (125) (108)
----------- ----------- ----------- ----------- -----------
Total underlying income 4,889 4,555 4,585 4,518 4,728
Total costs (2,408) (2,587) (2,492) (2,471) (2,574)
Impairment (1,002) (1,278) (1,262) (1,500) (1,657)
----------- ----------- ----------- ----------- -----------
Underlying profit 1,479 690 831 547 497
----------- ----------- ----------- ----------- -----------
Banking net interest margin 1.96% 1.94% 1.93% 1.91% 1.95%
Impairment charge as a % of
average advances 0.80% 0.96% 0.93% 1.05% 1.14%
Return on risk-weighted assets 1.96% 0.87% 1.01% 0.65% 0.57%
(1) Restated to reflect the implementation of IAS 19R and IFRS 10.
See page 12.
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
31 Mar 31 Dec 30 Sept 30 June 31 Mar
Core 2013 2012(1) 2012(1) 2012(1) 2012(1)
GBP million GBP million GBP million GBP million GBP million
Net interest income 2,452 2,487 2,459 2,472 2,450
Other income 2,265 1,932 1,963 1,888 1,999
Insurance claims (86) (30) (102) (125) (108)
----------- ----------- ----------- ----------- -----------
Total underlying income 4,631 4,389 4,320 4,235 4,341
Total costs (2,269) (2,341) (2,246) (2,314) (2,353)
Impairment (491) (568) (373) (566) (412)
----------- ----------- ----------- ----------- -----------
Underlying profit 1,871 1,480 1,701 1,355 1,576
----------- ----------- ----------- ----------- -----------
Banking net interest margin 2.34% 2.33% 2.32% 2.32% 2.32%
Impairment charge as a % of
average advances 0.51% 0.50% 0.36% 0.52% 0.36%
Return on risk-weighted assets 3.20% 2.47% 2.83% 2.26% 2.61%
(1) Restated to reflect the implementation of IAS 19R and IFRS 10.
See page 12.
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
31 Mar 31 Dec 30 Sept 30 June 31 Mar
Non-core 2013 2012 2012 2012 2012
GBP million GBP million GBP million GBP million GBP million
Net interest income 101 58 116 110 183
Other income 157 108 149 173 204
Insurance claims - - - - -
----------- ----------- ----------- ----------- -----------
Total underlying income 258 166 265 283 387
Total costs (139) (246) (246) (157) (221)
Impairment (511) (710) (889) (934) (1,245)
----------- ----------- ----------- ----------- -----------
Underlying loss (392) (790) (870) (808) (1,079)
----------- ----------- ----------- ----------- -----------
Banking net interest margin 0.44% 0.37% 0.49% 0.50% 0.70%
Impairment charge as a % of
average advances 2.03% 2.80% 3.08% 2.88% 3.71%
APPENDIX 2
BASIS OF PREPARATION OF UNDERLYING BASIS INFORMATION
The tables below set out a reconciliation from the published statutory results to the underlying basis results:
Removal of:
---------------------------------------------------------------
Acquisition Volatility
Lloyds related arising Legal
Three months Banking and in Insurance and
ended Group other insurance gross regulatory Fair value Underlying
31 March 2013 statutory items(1) businesses up provisions(2) unwind basis
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest
income 457 (39) - 1,975 - 160 2,553
Other income 17,609 (598) (462) (14,115) - (12) 2,422
Insurance
claims (12,167) - - 12,081 - - (86)
---------- ----------- ----------- --------- -------------- ---------- ----------
Total
underlying
income 5,899 (637) (462) (59) - 148 4,889
Operating
expenses(3) (3,000) 512 - 59 - 21 (2,408)
Impairment (859) 21 - - - (164) (1,002)
---------- ----------- ----------- --------- -------------- ---------- ----------
Profit (loss) 2,040 (104) (462) - - 5 1,479
---------- ----------- ----------- --------- -------------- ---------- ----------
Removal of:
---------------------------------------------------------------
Acquisition Volatility
Three months Lloyds related arising Legal
ended Banking and in Insurance and
31 December Group other insurance gross regulatory Fair value Underlying
2012(4) statutory items(1) businesses up provisions(2) unwind basis
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest
income 2,220 (119) 1 670 - (227) 2,545
Other income 8,984 (1,638) (72) (5,281) 50 (3) 2,040
Insurance
claims (4,595) - - 4,565 - - (30)
---------- ----------- ----------- --------- -------------- ---------- ----------
Total
underlying
income 6,609 (1,757) (71) (46) 50 (230) 4,555
Operating
expenses(3) (5,237) 635 - 46 1,950 19 (2,587)
Impairment (1,371) 320 - - - (227) (1,278)
---------- ----------- ----------- --------- -------------- ---------- ----------
Profit (loss) 1 (802) (71) - 2,000 (438) 690
---------- ----------- ----------- --------- -------------- ---------- ----------
Removal of:
---------------------------------------------------------------
Acquisition Volatility
Three months Lloyds related arising Legal
ended Banking and in Insurance and
31 March Group other insurance gross regulatory Fair value Underlying
2012(4) statutory items(1) businesses up provisions(2) unwind basis
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest
income 1,288 (107) (3) 1,240 - 215 2,633
Other income 10,591 16 (166) (8,176) - (62) 2,203
Insurance
claims (6,998) - - 6,890 - - (108)
---------- ----------- ----------- --------- -------------- ---------- ----------
Total
underlying
income 4,881 (91) (169) (46) - 153 4,728
Operating
expenses(3) (3,146) 132 - 46 375 19 (2,574)
Impairment (1,455) - - - - (202) (1,657)
---------- ----------- ----------- --------- -------------- ---------- ----------
Profit (loss) 280 41 (169) - 375 (30) 497
---------- ----------- ----------- --------- -------------- ---------- ----------
(1) Comprises the effects of asset sales (Q1 2013: gain of GBP823 million;
Q4 2012: gain of GBP1,248 million; Q1 2012: gain of GBP122 million),
volatile items (Q1 2013: loss of GBP120 million; Q4 2012: gain
of GBP211 million; Q1 2012: loss of GBP199 million), liability
management (Q1 2013: loss of GBP87 million; Q4 2012: loss of GBP22
million; Q1 2012: gain of GBP168 million), Simplification costs
related to severance, IT and business costs of implementation (Q1
2013: GBP214 million; Q4 2012: GBP344 million; Q1 2012: GBP161
million), Verde costs (Q1 2013: GBP195 million; Q4 2012: GBP171
million; Q1 2012: GBP108 million); the amortisation of purchased
intangibles (Q1 2013: GBP103 million; Q4 2012: GBP120 million;
Q1 2012: GBP121 million) and the past service pensions credit (Q1
2013: GBPnil; Q4 2012: GBPnil; Q1 2012: GBP258 million).
(2) Comprises the payment protection insurance provision (Q1 2013:
GBPnil; Q4 2012: GBP1,500 million; Q1 2012 GBP375 million) and
other regulatory provisions (Q1 2013: GBPnil; Q4 2012: GBP500 million;
Q1 2012: GBPnil).
(3) On an underlying basis this is described as total costs.
(4) Restated to reflect the implementation of IAS 19R and IFRS 10.
See page 12.
APPENDIX 3
EXPOSURES TO EUROZONE COUNTRIES
The following section summarises the Group's direct exposure to certain European countries. The exposures comprise on-balance sheet exposures based on their balance sheet carrying values and off-balance sheet exposures, and are based on the country of domicile of the counterparty, other than asset-backed securities which are based on the location of the underlying assets.
The Group manages its exposures to individual countries through authorised country limits which take into account economic, financial, political and social factors. In addition, the Group manages its direct risks to the selected countries by establishing and monitoring risk limits for individual banks, financial institutions and corporates. We take into account indirect risk, where we have determined that our counterparties have material direct exposures to the selected countries.
The profiles of banks, financial institutions and corporates are monitored on a regular basis and exposures managed accordingly.
The Group Financial Stability Forum has been established in order to monitor developments within the Eurozone, carry out stress testing through detailed scenario analysis and complete appropriate due diligence on the Group's exposures.
The following table summarises exposures to Ireland, Spain, Portugal, Italy and Greece by type of counterparty:
Sovereign debt
------------------
Financial
institutions
Cash
Direct at Asset
sovereign central backed Insurance
exposures banks Banks Other securities Corporate Personal assets Total
At 31 March
2013 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Ireland - - 95 748 314 6,057 5,689 115 13,018
Spain 7 17 546 1 35 2,209 1,492 21 4,328
Portugal - - 123 3 205 185 10 - 526
Italy 5 - 66 3 11 150 - 36 271
Greece - - - - - 166 - - 166
12 17 830 755 565 8,767 7,191 172 18,309
------- -------- ------- ------ ----------- --------- -------- --------- ------
At 31 December
2012
Ireland - - 115 644 305 5,972 5,559 111 12,706
Spain 5 14 1,170 7 132 2,110 1,472 25 4,935
Portugal - - 118 - 224 187 10 - 539
Italy 5 - 44 - 10 150 - 37 246
Greece - - - - - 277 - - 277
10 14 1,447 651 671 8,696 7,041 173 18,703
------- -------- ------- ------ ----------- --------- -------- --------- ------
The Group continued to reduce its exposure to these countries and underlying exposures have been proactively managed down in line with its risk appetite. The Group's total exposure has reduced 2 per cent from GBP18,703 million to GBP18,309 million. On a constant currency basis, the Group's total exposure reduced by 6 per cent in the period. Total exposures to Ireland have increased in the period but when exchange rate movements are excluded, underlying total Euro exposures in Ireland have continued to fall.
On 29 April 2013 the Group announced the sale of its Retail Banking operations in Spain. The business being sold consists mostly of retail mortgages and deposits and its sale will further reduce the Group's exposure to Spain by around GBP1.5 billion. The Group's Spanish corporate banking operations, serving business clients, are not included in the transaction.
EXPOSURES TO EUROZONE COUNTRIES (continued)
Exposures to other Eurozone countries
In addition to the exposures detailed above, the Group has the following exposures to sovereigns, financial institutions, asset-backed securities, corporates and personal customers in the following Eurozone countries:
Sovereign debt
-----------------
Financial
institutions
Cash
Direct at Asset
sovereign central backed Insurance
exposures banks Banks Other securities Corporate Personal assets Total
At 31 March
2013 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Netherlands - 17,777 1,017 5 281 2,627 5,756 1,147 28,610
Germany 352 1,871 664 199 319 1,849 - 1,162 6,416
France - - 1,297 32 80 3,210 294 1,300 6,213
Luxembourg - - 9 1,256 - 1,515 - 192 2,972
Belgium 8 - 482 25 - 787 - 55 1,357
Finland - - 1 - - 24 - 250 275
Austria - - 6 1 - 150 - - 157
Malta - - - - - 101 - - 101
Cyprus - - - - - 35 - - 35
Slovenia 1 - 30 - - - - - 31
Estonia - - - - - 2 - - 2
Slovakia - - - - - - - - -
------ -------- ------- ------ ----------- --------- -------- --------- ------
361 19,648 3,506 1,518 680 10,300 6,050 4,106 46,169
------
At 31 December
2012
Netherlands 1 33,232 478 2 268 2,207 5,649 977 42,814
Germany 284 1,809 389 414 400 2,117 - 977 6,390
France 6 - 853 - 77 3,226 312 1,457 5,931
Luxembourg - 2 - 834 - 1,841 - 71 2,748
Belgium - - 309 25 - 568 - 64 966
Finland - - 16 - - 43 - 214 273
Austria - - 3 - - 73 - - 76
Malta - - - - - 218 - - 218
Cyprus - - 2 - - 102 - - 104
Slovenia - - 35 - - - - - 35
Estonia - - - - - 2 - - 2
Slovakia - - - - - - - - -
------ -------- ------- ------ ----------- --------- -------- --------- ------
291 35,043 2,085 1,275 745 10,397 5,961 3,760 59,557
------ -------- ------- ------ ----------- --------- -------- --------- ------
Total balances with other Eurozone countries have decreased from GBP59,557 million to GBP46,169 million. This is primarily due to a decrease in Dutch central bank balances. Derivatives with sovereigns and sovereign referenced credit default swaps are insignificant.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Charles King
Investor Relations Director
020 7356 3537
charles.king@finance.lloydsbanking.com
CORPORATE AFFAIRS
Matthew Young
Group Corporate Affairs Director
020 7356 2231
matt.young@lloydsbanking.com
Ed Petter
Group Media Relations Director
020 8936 5655
ed.petter@lloydsbanking.com
Copies of this interim management statement may be obtained from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN. The statement can also be found on the Group's website - www.lloydsbankinggroup.com.
Registered office: Lloyds Banking Group plc, The Mound, Edinburgh EH1 1YZ
Registered in Scotland no. SC95000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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